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Northern Rock

Volume 696: debated on Monday 19 November 2007

My Lords, I beg leave to repeat a Statement made by my right honourable friend the Chancellor in another place this afternoon. The Statement is as follows:

“With your permission, Mr Speaker, I should like to make a Statement to update the House on the current position with regard to Northern Rock.

“The House will recall that last week I said during the Queen’s Speech debate that I would keep the House informed of developments. I also said that I expected to publish a statement of principles underpinning the Government’s approach to proposals received by Northern Rock with regard to its future. I published that statement this morning, prior to the markets opening, in the usual way. Copies are available in the Vote Office and the Library of the House.

“It is important to be clear about the respective responsibilities of the Northern Rock board and the Government. The board is legally responsible to its shareholders for the future of the company. However, the Government have a wider public interest in maintaining financial stability, which is why we agreed to “lender of last resort” support in September and subsequent lending by the Bank of England. The Government also have an interest in protecting the interest of the taxpayer. Because of this, the Government have, as a major creditor, a very direct interest in the future of Northern Rock. Therefore, the Government have to agree to any proposals for the future of Northern Rock.

“Before turning to our approach, let me first deal with the position with regard both to the guarantee arrangements to Northern Rock depositors provided by the Government, and to the loan facilities provided by the Bank of England to support Northern Rock and to maintain financial stability in general.

“First, we have made it clear that the guarantee arrangements already announced for depositors to safeguard their position will remain in place during the current instability in the financial markets. Those guarantee arrangements were absolutely necessary. They have not had any cost to the taxpayer because these deposits, covered by the guarantee arrangements, remain in the bank.

“As I have said before, savers are free to take their money out if that is what they want to do, but they have no need to do so. The guarantee arrangements ensure that savers’ deposits are safe. The guarantee will not be removed without proper notice being given to depositors.

“Looking ahead, I have made it clear that the Government will legislate for a new regime for protecting bank depositors. As the House knows, we have published a discussion paper on this legislation. I welcome the offer of cross-party support for it, but it is important that we get it right. There are many examples, both here and in other countries, where legislation has been rushed only to be regretted later.

“The current consultation finishes on 5 December. I will bring forward proposals in the new year when I have also had time to consider the outcome of the Treasury Select Committee’s work, as it has requested.

“The second element of support is the Bank of England loan facilities. It is important to remind ourselves why that support was put in place in the first place. Northern Rock got into difficulties because it was almost totally reliant on getting very substantial sums from the securitisation and money markets on a continuous basis to do its business. When that lending became ever more difficult, it had no option other than to go to the Bank of England. Because of the possible impact on the stability of the wider financial system, it was right that I authorised the Bank of England to intervene, and that, too, had cross-party support.

“While international financial markets have shown signs of improvement since the sharp credit squeeze in August and September, there clearly remains continued uncertainty in markets following the problems that arose in the American housing market in the summer. The rates at which banks are willing to lend to each other also remain high in all the major currencies. Therefore, it is vital that we do everything that we can to maintain stability internationally as well as here at home.

“As the House knows, we are taking steps at an international and domestic level to improve the regulatory regime and to provide greater transparency. That was the subject of the discussions of the G20 Finance Ministers that I attended in Cape Town over the weekend.

“The continuing support by the Bank of England has also given Northern Rock an opportunity to consider its strategic options. I am very clear that this is also the right thing to do, and indeed when I announced it to the House it enjoyed support from all parts of the House.

“I know that there has been interest in how much support the Bank of England is giving. The Bank publishes its balance sheet every week. However, in common with other central banks, it does not provide details of any operations, because it believes that doing so would undermine its ability to provide such support. I understand the frustrations this can sometimes cause. However, to provide what would, in effect, be a running commentary on any operations would likely have adverse effects that none of us would want.

“Having said that, I can tell the House that the Bank of England lending is secured against assets held by Northern Rock. These assets include high-quality mortgages with a significant protection margin built in and high-quality securities with the highest quality of credit rating. The Bank is the senior secured creditor. The FSA has said before, and continues to say, that Northern Rock’s main asset base—its mortgage book—is strong and sound.

“Like any lender on this scale, we have ensured that the Bank’s lending is subject to significant conditions and controls to ensure that our interests are protected. In return for this facility, Northern Rock has agreed a number of controls, including not declaring, making or paying any dividend without the prior written consent of the Bank of England and not making any substantial change to the nature of its business.

“I now turn to the next stage. It is in the interests of everyone that the situation with regard to Northern Rock is resolved as soon as possible. That is why Northern Rock asked for expressions of interest in purchasing the business. As the company has announced earlier today, as part of its review of its strategic options, it has received indicative expressions of interest covering a range of options for the business. It currently expects to receive further expressions of interest in the next few days.

“It is essential that public interest here is protected. That is why today I have published the principles that will underpin the Government’s approach when assessing proposals from Northern Rock regarding its future. As I said, the Government have to agree any such proposals.

“These principles make it clear that the Government have a clear duty to protect the public interest, and we will do that. However, I think the whole House, and particularly those honourable Members representing constituencies in the north-east, will want us to do everything we can within the constraints upon us to resolve a very difficult position for Northern Rock. So let me set out our approach.

“First, we will protect the interests of the taxpayer. Substantial sums have been lent and this money has to be repaid at an appropriate time and rate. The Government will consider proposals with a view to reaching the best outcome for the public purse. Secondly, we will protect depositors. It is essential to do everything we can both to safeguard their interest and to maintain the service provided to them. Thirdly, we will maintain wider financial stability.

“As I have made clear all along, the Government will now assess proposals from the company consistent with the approach I have set out here, and we remain closely engaged with the company as the best outcome for the future is assessed.

“As the company has acknowledged today, any proposals would have to be approved by the Government, and, importantly, any proposal can be vetoed by the Government. In that way, the Government can ensure that the public interest is safeguarded. As I told the House, any outcome must meet EU state aid rules.

“It would be quite wrong to dismiss any option now without proper consideration, as some suggest. I continue to believe it is right to use this time to explore the best outcome for the company and the public interest. I agreed to Bank of England support because I believed it was right to do so. I agreed to continuing support to allow Northern Rock the time it needs to consider its strategic options because it was right to do so. And I have today set out the approach the Government will take as they assess proposals from the company to ensure that we will only approve a solution that safeguards both the public interest and the specific interests of the taxpayer. That work is being done now and will be concluded as quickly as possible. I will, of course, continue to keep the House informed in the coming weeks. I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I thank the Minister for repeating the Statement made in another place. It is plain that the mess that is Northern Rock is the result of bungling of the very highest order. Northern Rock's board must certainly take the blame for a business model that did not withstand the liquidity squeeze. It is right and proper that several members—executive and non-executive—have now quit office. The problems faced by Northern Rock were magnified by the inadequacy of the tripartite arrangements which oversaw the government response to the situation. I remind the House that this resulted in the first run on a bank in the United Kingdom for 140 years and did considerable damage, not only to Northern Rock but to our financial services sector overall.

The tripartite arrangements were invented by the Prime Minister when he was Chancellor and they failed their first big test. The Government still have not said anything about changes to the tripartite arrangements and I ask the Minister what the Government intend to do about them. I hope that they will not be needed again, but we cannot be sure about that. We need to be sure that they will work better next time.

The Governor of the Bank of England was very clear when he gave evidence to the Treasury Select Committee in another place that various legislative changes were needed. We know that there will be a depositor protection Bill some time this Session but there has been silence from the Government about the other legislative changes. When do the Government intend to address those issues? They seem at least as important as sorting out depositor protection, especially given the fact that the Government have already created the precedent of underwriting the whole of Northern Rock's liabilities.

The statement made by the Treasury this morning merely deepens the mire in which the Government find themselves. We knew that the Government had said that they would guarantee the liabilities of Northern Rock while the financial instability lasted, but we do not know how long it will last and today we are none the wiser. In what respect do the Government consider that financial instability continues? How will we know when the financial instability has come to an end? Will the Minister say whether the continuance of financial instability and hence the need to guarantee Northern Rock's liabilities is a specific or a systemic concept—that is, does it relate only to the instability of Northern Rock?

We already knew that Northern Rock has been increasingly drawing on the facility set up by the Bank of England, and we are led to believe that that was fully backed by assets. Today, the Government have declined to give full details but have said that the lending is secured against assets. How much security has been given? Are the advances 100 per cent covered by assets and is there a reasonable margin on top?

The Statement did not deal with the interest on the loans made to Northern Rock. This morning it was reported that some part of the interest was being rolled up in the form of a five-year subordinated debt. Is that true? Are all the interest payments from Northern Rock being made in cash and on time and, if not, what is happening to the balance? Are all the advances made to Northern Rock on the Bank of England's balance sheet or is some part perhaps related to rolled-up interest carried on the Treasury's own balance sheet and, if so, why?

Northern Rock's own statement this morning said that the value to shareholders of any of the strategic options, including the sale options, was “highly uncertain”. In City-speak that means that there may well be nothing at all left for shareholders. In the Government’s view, could all the losses go beyond the equity holders and, if so, who is next in line to bear any losses? Might it be necessary for the Bank or the Treasury to write off any sums advanced to Northern Rock, including any rolled-up interest?

The principles statement this morning set out the three objectives of the tripartite authorities in relation to Northern Rock. I understand the need to protect taxpayers—that is clear. I also understand the need to protect consumers, who have been protected extremely well thus far. Will the Minister explain the issues around financial stability, which is the tripartite authorities’ third objective?

When the Government stepped in to support Northern Rock through the Bank of England there were clear systemic concerns. Can the Minister explain in what sense Northern Rock continues to present systemic issues? Do the Government believe that there are, today, financial stability issues which go beyond Northern Rock? If so, what are they? Are any other institutions being supported in the same way as Northern Rock, which is what is implied by a continuation of financial stability issues?

Last week the documents inviting bids for Northern Rock escaped into the public domain. They contained some startling assumptions about the continuation of government money for the long term and about possible retrospective reductions in the rate of interest being charged. Finally, will the Minister give a positive assurance to the House that the Government have no intention to make taxpayers foot that kind of bill even if the EU state aid rules allow it?

My Lords, I, too, thank the Minister for repeating the Statement. Like many other noble Lords, I am sure, I find it extremely disappointing. It says virtually nothing new, contains no specific proposals and fails completely to acknowledge the situation that Northern Rock finds itself in. At present, every taxpayer has about £900 invested in or at stake in Northern Rock, making a colossal £24 billion loan in total. That is a staggeringly large amount.

Following the expressions of interest made at the end of last week, does the Minister accept that it is clear that Northern Rock simply cannot be sold—as the Government would clearly like, and which in a sense is the ideal situation—as a going concern, lock, stock and barrel, at anything like the existing share price, and possibly at any significant positive share price at all? Is not the truth that Northern Rock is now worth virtually nothing and that there are only two realistic options going forward? The first is administration and the second is government control by temporary public ownership. Of the two, administration seems the less attractive. It would in effect close Northern Rock down. It might well end up with Northern Rock being split up, bringing significant costs to the north-east, which we would all like to avoid, and it would probably cost the Government millions if not billions. The administrators’ main concern of course would be the interests of the shareholders.

In our view public ownership would reflect the current reality. Northern Rock only survives at all today because of government support. Public ownership would avoid the conflicts of interest which currently exist in the management between the public’s interest and shareholders’ interest, and it would give time to stabilise the situation.

The Government accepted the principle of public ownership when that was the least bad option in the case of Railtrack. They should surely do the same in this case. I should be grateful if the Minister would confirm that when the Chancellor says in his Statement that he has ruled out no options, the options that still remain on the table include the option of public ownership. Secondly, will the Minister comment on the situation of Mr Applegarth and, in particular, whether he is, as reported, likely to leave with a £2 million pension pot and a generous pay-off, all underwritten by the taxpayer? Does he agree that most people would find such a payment, if it were made, to be repugnant? Can he make that view clear to the current chairman of Northern Rock?

Over the weekend, there have been a number of comments by hedge fund shareholders in Northern Rock demanding, in effect, that they get a high value for their shares. Can the Minister or the Chancellor explain to them the nature of markets: that if they invest in a concern that is growing rapidly, unsustainably and on an increasingly risky basis, they may come a cropper and that, if they do, they have no one but themselves to blame?

On the question of government support, the nature of government support and the nature of the asset against which that support rests, can the Minister confirm that, despite the statement made by the Prime Minister, not all the government support is against secured assets? In the Statement today, the Chancellor says that those assets include high-quality mortgages and high-quality securities, and repeats the fact that the FSA has said before and continues to say that Northern Rock’s main asset base—its mortgage book—is strong and sound. That may be, but can the Minister confirm that a significant proportion of its assets—probably in excess of £8 billion—is not secured on anything and that that is necessarily the case when Northern Rock has been giving and, until very recently continued to give, mortgages to a value of 127 per cent of the value of the property on the day on which the mortgage was given? That is at a time of falling house prices, so if it is £8 billion today, it will be £9 billion and more in the coming months. When the Government claim that they are lending against secured assets, that seems a somewhat misleading statement. I would be grateful if the Minister could confirm what the Prime Minister had in mind last week when he used that phrase.

To sum up, this is an extremely sorry saga. Some of the elements that led to it, as the noble Baroness said, such as the way in which the tripartite agreement was working in the summer, will need careful review. At the moment, we need decisive action—something which is completely lacking from today's Statement. In our view, only public ownership will protect the public and the taxpayer interest. Today's Statement totally fails to reflect the seriousness of the current situation.

My Lords, I am grateful to both noble Lords, who have each commented on the existing arrangements of the tripartite authorities. Of course we are learning lessons from Northern Rock and have indicated that improvements can be effected to those arrangements. Part of the difficulty lay in the degree of monitoring of the bank's activities. That indicates that there is a great deal more work to be done in times of trouble. Financial instability is a feature of the international markets at the moment and it is not going to go away tomorrow. We respect and take on board that point and are working towards improving our arrangements.

However, the main purpose of the Statement is to discuss where we are as a consequence of the failure of that bank. I emphasise to both noble Lords that we appreciate, because substantial sums of public money are involved, that the Government must take the keenest interest in developments. That is why we have a veto over the future arrangements and are to be consulted on the developments concerning the future of the bank. But I disavow the concept the noble Lord, Lord Newby, suggests, that there are only two options with regard to the bank. He has already reached the carefully judged and well evaluated position that no one can produce anything like a realistic bid with regard to this bank and that, therefore, any option coming forward in those terms is destined to fail. I do not know on what basis he reaches that position.

I can see the temporary Liberal attachment to nationalisation, but that does nothing about the bank’s debts and lack of security or the government money invested in it. It merely means that the Government would administer the bank, as opposed to the present position of exercising a veto over future arrangements, unless we are satisfied that the taxpayers’ and depositors’ interests are safeguarded. I do not accept that there are only two options. It ill behoves the Liberal party at this stage to pursue a strategy which seems to be to cry woe, when the purpose of government is to solve problems rather than merely indicate that—as far as the Liberal party is concerned—they are largely insoluble.

I reassure the noble Lord that the Government will do anything they can to reinforce public opinion, which has been well articulated, on anyone making gains from the horrendous position in which Northern Rock finds itself, so shareholders or chief executives who purport to move away from the situation with substantial gains will face the greatest public opprobrium. I assure the noble Lord that the Government share his distaste for any such development.

On a point made by the noble Baroness and the noble Lord, Lord Newby, of course there is a substantial, strong asset base to this bank, which is why there is the possibility of a deal. Equally clearly, parts of the situation are fraught. The bank would not be in this situation if how far it was exposed, in terms of its commitment to lending it could not of course afford to contract, had not been identified, which is why the Government had to step in.

I want to confirm to the House that the Chancellor assured the other place that the loans made from the Bank of England were a very long way below the tangible and real assets of the bank, which is why we can guarantee that this money is secure. The Chancellor, in adumbrating his three principles today, emphasised that two of them related to the guarantees of the public interest for the taxpayer and the deposit holders.

Although there may have been leaks from certain documents with regard to bids, the noble Baroness will recognise that it is not possible for this exercise to be transacted in the full glare of publicity. The Chancellor is under a moral, political and proper public obligation to report to the other place when significant developments occur in this saga, which he did today in identifying the principles on which the Government will act. But it would be a strange world of significant finance if we trailed around the Bank of England’s lending book on this position and the loans that had been made in great detail; identified every nook and cranny of Northern Rock, the extent of its assets and where it was vulnerable; and then purported to be in a conceivable position where people could make intelligent public bids. There are bound to be certain operations related to the potential rescue of the bank which must be carried out with a decent degree of privacy. At the same time, any decisions reached will affect the public and the taxpayer, and the Chancellor has undertaken to report on all of them.

I want to emphasise again that this is a parlous situation. Hindsight is a wonderful concept and I repeat the comment of the Opposition that this is the first run on a bank for over a century. It is also a reflection of exceptional international financial conditions. After all, the Opposition will recognise that there are institutions in the United Kingdom with far greater resources than Northern Rock which have been obliged to make adjustments against the issue of international financial stability, and they are able to do so because of their robust health. But that does not alter the fact that losses have been sustained in some very significant financial organisations. Although Northern Rock is an important business, and important to a specific region—the employment issues that have arisen are particularly important—it was not the most significant financial institution in this country when it suffered through becoming involved in misplaced financial borrowing. Others are paying the price.

The important things for the Government were clear: we needed first to make sure that when we offered taxpayers’ support, it was adequately safeguarded and secured. Secondly, it was essential that we guaranteed that depositors’ funds were safe. That is our contribution to the much broader issue of maintaining financial stability—the Government certainly have a major obligation with regard to international financial stability—otherwise others might have followed a path not dissimilar to that of Northern Rock. That is why we acted as we did, and it is why this is a significant issue for the whole nation. It is also why the Chancellor has undertaken to report to the House on all the major developments. However, the House should recognise that in certain respects this is inevitably an interim Statement about issues yet to fulfil their development.

My Lords, I thank the noble Lord for that response, but I do not believe that he has answered any of the detailed questions put to him by myself or the noble Lord, Lord Newby. Will he undertake to answer those questions in writing?

My Lords, if there are any deficiencies, I will of course be happy to write to the noble Baroness and the noble Lord.

My Lords, I should declare an interest as someone who owes Northern Rock quite a lot of money in equity release. If Northern Rock owed me money, of course I would not stand up and speak in the House on this issue.

Does my noble friend accept that if the Treasury and the Bank of England had given evidence to the Select Committee on Regulators, which I had the honour to chair earlier this year and which reflected the events that have become public over the past few months, at the very least the questioning would have been a good deal sharper? I suggest also, with diffidence in the presence of some members of the Select Committee, that the report might have been a good deal sharper as well.

Will the Minister urge the Chancellor to be extremely careful not to rule out the options which the noble Lord, Lord Newby, has put before the House today? Yes, of course there is a possibility that a fit deal can be achieved, and a fit deal is one which costs taxpayers nothing—nothing at all, including a penal rate of interest on the loans which are being made. However, the option of administration or the Railtrack option must not be dismissed at this stage. It must be the case that we have far greater calls on many billions of pounds of public money for our services and social policies than the protection of the shareholders of Northern Rock. Will he convey that message to the Chancellor?

My Lords, I am grateful to my noble friend. Any arrangements we make afresh on regulation will be made known to both Houses, and I do not doubt that his committee will take a very real interest in any emendations.

My Lords, with regard to the words of the noble Lord, Lord Newby, I can assure my noble friend that I was not ruling out his two options. I was just seeking to demonstrate that I did not think that they were the only options on the table. That was the point I sought to stress. They are two possibilities, but I think that my noble friend will share with me the belief that there is also a third option.

My Lords, can the Minister help us to clear up the question of what exactly constitutes state aid in this case? The Treasury paper released today says that the facilities which were announced on 9 October amount to state aid and will need to be approved by the European Commission. Does that include the guarantee on depositors’ funds, and does that mean that the guarantee on those funds could be removed by the Commission and that we could have a second run on a bank in 165 years? Can the Minister also help me on a further point? He was very dismissive of what the noble Lord, Lord Newby, had to say about nationalisation—bringing Northern Rock into state ownership. Given that the Northern Rock bank is being provided with its liquidity by the state to the tune of £24 billion, and given that its depositors’ assets are being guaranteed by the state, have not the Government effectively nationalised it already? It is perfectly obvious that any shareholder value lies only in the extent to which the taxpayer is prepared to provide support and subsidy, so why should the taxpayer put up the money for someone else to make money at the taxpayer’s expense? I never thought I would hear myself say it, but surely nationalisation is the consequence of this Government’s incompetence.

My Lords, I never thought that I would stand at this Dispatch Box and hear calls for nationalisation from the noble Lord. Let me emphasise that what we are discussing are the issues immediately confronting Northern Rock and the solutions which we hope will secure its long-term future. The noble Lord will appreciate that if we took the view that nationalisation was necessary—he suggests that it has taken place already in a de facto way, although of course I dispute that—then we would need legislation, and obviously the timescale involved in any return to the private sector would be unduly prolonged, if it occurred at all. The noble Lord will recognise that at this point the Government have not taken that decision, and quite properly so. The other option is still alive and on the table, and that is the basis of the discussions which are going on and the bids which are to be submitted.

On the question of state aid, the noble Lord is well versed in matters European so he will recognise that one of the crucial issues which cuts in with regard to state aid from the European Community is the length of time over which support can be provided. There is a commitment up to February of next year, and the Government are working well within that parameter. Nevertheless, we will have to have regard to the fact that if aid were to become prolonged and persistent we would have to address the question of the European Community and discuss the issues further there.

My Lords, I speak as a citizen of Newcastle. Northern Rock is our bank and I am a saver with it. I am grateful for the continuing reassurance from the Minister that my savings—not that they amount to very much but such as they are—remain safe.

I have been struck by the way that the crisis at Northern Rock has been both perceived and reported by, first, the people of the north-east, and, secondly, the people in London-based institutions and media. There has been overwhelming public support for our bank from all the institutions in the north-east, but we perceive that there has been almost overwhelming negativity from London, blaming and scapegoating those on the board who have been responsible.

I was pleased to hear the Minister say that Northern Rock’s main asset is still strong and sound. People in the north-east know that. We are at one in wishing for the bank to be kept intact by its new owners, whoever they may be. That is not simply because 6,000 jobs are at stake in the region—although of course they are—and there are many more jobs indirectly at stake, all held in the future with Northern Rock.

There is also considerable pride in and support of the wonderful contributions that the bank, through its foundation, has made to life in the north-east. We would have been very much the poorer and the disadvantaged—

My Lords, I am extremely sorry to interrupt the right reverend Prelate, but I remind him and the House that we have only 20 minutes for this part of the proceedings. If he could finish his comments and come to a question, we would be very grateful.

My Lords, I apologise to the House. Will one of the strategic options being seriously considered be for the Government to take the bank into public ownership, at least until the whole position is stabilised? Does the Minister think that keeping the bank intact in its entirety is a better option than disposing of it piecemeal?

My Lords, on the right reverend Prelate’s final point, that is exactly what the Government are striving for. We recognise the significance of the bank to international financial stability, and the British financial markets in particular, and the important role it plays in the UK economy, especially in the north-east. The right reverend Prelate is as well placed as anyone in this House to comment on that.

We are not ruling anything out. Earlier on in my rather robust response to the call for nationalisation, I was merely seeking to indicate that the Government did not think that we had reduced three options to only two: administration or nationalisation. There are three possible options, and it is important that we keep them as valid as we can in order to guarantee exactly the service to which the right reverend Prelate has referred.

My Lords, does the Minister accept from what is being said all around the House that his response to my noble friend’s suggestion fell well short of what was required in dealing with the seriousness of this situation?

I have two specific questions. First, is the Bank of England the senior secured creditor for all its lending to Northern Rock? Does any other lender’s security rank pari passu with any of the Bank’s lending?

Secondly, the noble Baroness, Lady Noakes, referred to the briefing memorandum for Northern Rock, to which I referred in my speech last week on the Address. Does the Minister understand that there is a blatantly false market in Northern Rock—that every spiv and shark in the City and hedge funds that have been shorting it are dealing on the back of that memorandum, of which they have copies, while small shareholders are completely in the dark? Will the Government please ask the Stock Exchange to suspend the shares pending clarification of the company’s financial position?

My Lords, on the latter point, we do not think the issues are as serious as that.

It is undoubtedly the case that damage has been done by these leaks, which we greatly regret. That is why I have been at pains today to stress that certain developments with regard to Northern Rock must be contained within a framework of considerable privacy because damage is done to those who are ill informed by those who have an inside track on such information. That is why we want a speedy solution. However, we also make it clear that there are limits on the amount of information that we are prepared to see in the public domain.

My answer to the first point is straightforward: the Bank of England is absolutely assured that all its loans to Northern Rock are adequately secured against its assets. It therefore expresses no anxiety about the investment it has made.

My Lords, I share the concern of everyone for transparency, but while the Treasury is involved in detailed negotiations it would be foolish to press for details and I do not propose to do so. The Minister told us that the Treasury has to agree to any deal, but does he accept that the shareholders also have to agree? Can we take it that the Treasury would be willing to override the shareholders if it did not consider what they proposed to be in the public interest, as he has described it?

The Minister told us that Northern Rock’s good assets—including, I assume, my noble friend’s loan to the bank—are a long way above the level of loans at the moment. I would be glad if the Minister could confirm that again, because the other day my noble friend Lord McKenzie said he did not know what the bank was worth. I assume he did not know what the Chancellor or my noble friend were about to tell us.

I have a final, simple question. When the money was loaned by the Bank of England, it was said that this was because the Bank considered itself to be the lender of last resort. Is that still the position? That will be of concern to many others.

My Lords, my noble friend will recognise that the Bank intervened and made its contribution as lender of last resort in circumstances where it was quite clear that Northern Rock could not stay solvent by access to any other resources. The Bank of England stepped in on that basis. It is the most senior secured creditor for the vast portion of the loan that has been made. I was asked about that earlier, and I assure the House on that point.

On my noble friend’s more general point, the position with regard to Northern Rock is changing from day to day—he will recognise that developments have moved beyond even my noble friend’s brilliant summing up of the Queen’s Speech debate last week—but we are entirely secure about the loans that have been made to the bank and we are seeing the prosecution of the potential for bids. Whether they will materialise in a form that will prove viable is still to be established, but the shareholders’ interests are almost bound to be concomitant with what is acceptable to the Government because if there were any deal worse than what the Government would accept, the shareholders would scarcely be beneficiaries anyway.

My Lords, do the Government agree that if a purchase is dependent on the Government’s guarantee being continued in some form and on government financial support, the deal has a value only because of that and the taxpayer should receive some benefit from a successful rescue? I agree with the right reverend Prelate’s point that any rescue should involve maintaining the asset as a whole.

That is right, my Lords. That is why the Bank is charging a rate of interest that is a return to the taxpayer on assets that are greater than the loans and therefore secured. We fervently hope, as do the noble Lord, the right reverend Prelate and others of good will in the House, that we will be able to maintain the integrity of the bank.

My Lords, when there is so much talk of millions, billions or even trillions, it is difficult to remember how many zeros there are after the first digit. It would therefore be helpful to have the figures concerned expressed in terms of the position of the taxpayer. It has been said that support for Northern Rock amounts to something like £900 per taxpayer. Will the Minister say what the figure is in those simple terms? By precisely what authority have these loans been made? Where in the Government’s accounts will the figures eventually appear?

My Lords, the loans have been made by the Bank of England on the basis of returns which it will in due course expect from the institution. I do not have a ready calculator to produce quite the figure that the noble Lord indicated, but we are talking about a substantial sum. Figures have been adduced to show that it is several times greater than the aid budget, and other comparators for the global sums involved exist. No one will gainsay the fact that very great sums of money are involved—that is why the issue is so serious for the whole community—but I do not think that the House would accept anything other than the obvious fact that the Government, the Bank of England, the FSA and others are wrestling night and day with the consequences of an extremely costly exercise for the taxpayer. I reassure the noble Lord that the Bank of England is entirely secure, and that what it has lent is secured against assets.

My Lords, is it fair to describe a mortgage book as “quality” when it includes 125 per cent mortgages and when property prices are probably likely to fall? Is it not true that many of the hedge funds to which noble Lords referred are losing money hand over feet, and that those involved have burnt their fingers by buying the shares?

My Lords, my noble friend is right that loans were taken out against insecurities—that is why the crisis occurred. That is a problem with the sub-prime market in the United States. Significant financial institutions in the United Kingdom are wrestling with those problems, but they are in a strong enough position to take them relatively in their stride, although at some considerable cost. Northern Rock had overstretched itself in those terms. However, I emphasise to my noble friend that when I say that Northern Rock has real assets, I mean that it has an extensive mortgage book of people who can pay and whose houses are more highly valued than the mortgages that are outstanding. As that book is so solid, the authorities are able to say that those assets are readily bankable against any loans which are made to the company. My noble friend is right that a percentage of Northern Rock’s assets fits into the “vulnerable” category—that is why it is in trouble. That does not alter the fact that Northern Rock was a building society with a long history. The bank built on that building society’s long history and, for a time, conducted itself thoroughly responsibly. It therefore has all the proceeds of those accumulated assets, while having the degree of vulnerability which has produced the present crisis.